IDC: Recession Signals Business Alignment - Joe Pucciarelli

The steps that business and IT leaders take today will have a long-term impact as the economic climate improves, Joe Pucciarelli, research director for technology financial and executive strategies at IDC, explains to FDE.

The global economic storm that struck in 2008 is finally showing signs of easing up. But as the winds die down, countless industries worldwide are being realigned as a direct result of this ‘100-year storm,’ says Joe Pucciarelli of IDC.

"The game-changing impact on a number of industries is abundantly clear; particularly in financial services, automotive and construction."

Pucciarelli predicts that as companies confront the post-recession economic landscape, the changed circumstances will create a cascading series of changes, or ‘realignments,’ throughout the entire business ecosystem. He recommends business and IT organisations act now – even before the storm fully abates – to address the implications. This becomes critical as business and IT communities gear up for an economic recovery.

Once economic stability is in sight, more changes will ensue as ‘next-generation’ IT tools assume an increasingly important role in facilitating communications with employees, customer, and business partners – reshaping requirements, resource and performance management and creating new, more effective change management processes.

A different capital market

For many IT organisations, the most recent period of business expansion was accompanied by unusually low-cost, easy-to-access investment capital. If a sound business case could be made, proposals were funded. But today's situation is markedly different. According to Pucciarelli, IDC believes that business capital will remain more costly up to 2012 at least.

"The importance of prudently managing capital resources cannot be overstated," he says, "Because capital constraints increasingly shape IT strategies."

"The importance of prudently managing capital resources cannot be overstated because capital constraints increasingly shape IT strategies."

Today’s new and evolving technologies – including virtualisation, next-generation data centres, cloud computing and second-generation ERP systems – have the potential to fundamentally change IT business models. Organisations that embrace and intelligently deploy new technologies can expect to prosper and grow market share; those that don’t risk falling badly behind.

Pucciarelli believes that capital constraints will increasingly shape IT strategies and business models – with cloud computing being a focal point.

"The rationale is simple, compelling and straightforward," he says. "While IT remains a major 'consumer' of investment capital, its low average device utilisation makes it an inefficient user. With business capital at a premium, organisations will be increasingly challenged to make platform and investment choices that use capital more efficiently."

The immediate challenge for business and IT leaders as they struggle with an onslaught of new IT service requirements, will be coping with the pressures of evolving their IT business model. One key to success, Pucciarelli says, is rethinking their IT financial architecture along with their technology plan.

"IT leaders need a better business, technology and financial framework," he suggests. "Organisations need to conduct a no-holds-barred review of requirements, constraints and opportunities – and then take action.’ Reevaluate IT investment strategies Pucciarelli recommends that business leaders and IT professionals reevaluate their IT investment strategies with an eye on taking advantage of flexible financing options that can preserve precious capital and reduce technology obsolescence.

"We believe the percentage of IT organisations leasing or financing equipment, software, and services will increase as companies adjust to the inevitability of more expensive capital."

He encourages organisations to map changing business process requirements against rising new technologies and act now to prioritise IT investments based on business value, focusing on areas offering clear competitive advantage.

"Above all else," he cautions, "resist temptations to allow capital constraints to dictate the pace of your organisation's IT transformation. Flexible sourcing solutions – including financing, outsourcing, and the cloud – offer vast promise and an array of cost-saving alternatives to survive and prosper in the coming years. ‘Looking ahead, change is not an option; it's the key to survival."